1. Forms of Business Organizations
Economic Concepts Pt.5:
Forms of Business Organizations

2. A) Sole Proprietorship and Partnerships
There are three main forms of business organizations in the American economy today: the sole proprietorship, the partnership and the corporation. Each of these offers its own significant types of advantages and disadvantages.
The most common form of business organization in the U.S. is the Sole Proprietorship, which is a business owned and run by a single individual.
Because sole proprietorships are basically one-person operations, they make-up the smallest part of the business world and have the smallest fraction of total sales. However, they are also relatively profitable, as they bring in about one-fifth of total profits earned by all businesses.
The sole proprietorship is the easiest form of business to start because it involves almost no requirements except for occasional business licenses and fees. Most sole proprietorships are ready for business as soon as they set up their operations.
A Partnership is a business that is jointly owned by two or more persons. It shares many of the same strengths and weaknesses of a sole proprietorship. However, partnerships are the least numerous forms of business organizations in the U.S.
The most common form of partnership is a General Partnership, in which all partners are responsible for the management and financial obligations of the business.
In a Limited Partnership, at least one partner is not active in the daily running of the business. Likewise, this same partner only has limited responsibility for the debts and obligations of the business.
Like a sole proprietorship, a partnership is relatively easy to start. However, because more than one owner is involved, formal legal papers called articles of partnership are usually drawn up to specify arrangements between partners.
Although these papers are not always required, these papers state ahead of time how the expected profits (or possible losses) will be divided between the partners.

4. Partnership

5. B) Corporations
Corporations account for only about one-fifth of the businesses in the U.S. today and are responsible for a majority of all sales.
A Corporation is a form of business organization recognized by U.S. law as a separate legal entity with all the rights of an individual citizen. This legal status gives corporations the right to buy and sell property, to enter into legal contracts, and to sue and be sued.
Unlike a sole proprietorship or partnership, a corporation is a legal arrangement. People who want to incorporate, or form a corporation, must file for permission to operate from the national Govt. or the State where the business will have its headquarters
If approved, a corporation is granted a Charter, which is a Govt. document that gives permission to create a corporation. The charter states the company’s name, purpose, and other features of the business.

6. C) Stock Types
A Corporations charter also specifies the number of shares of Stock that will be issued and sold to the general public.
These shares of Stock, which are ownership certificates of the Corporation, will be created and sold to investors, called Stockholders or Shareholders. Stockholders own a part of the corporation when they buy stock from a company.
The money gained from the sale of stock is used to fund the set up and growth of the corporation. If the corporation is profitable, it may eventually issue a Dividend – a check that transfers a portion of the corporation earnings – to each stockholder.
When investors purchase stock, they become part owners of a corporation. The extent of this ownership depends on the type of stock purchased: common or preferred.
Common Stock represents basic ownership of a corporation. The owner of common stock usually receives one vote in the company’s decisions for each share of stock owned.
This vote is also used to elect the Corporations board of directors, which in turn guides the corporation’s business direction by setting policies and goals of the company. The board also hires a professional management team (CEO’s) to run the business on a daily basis.
Preferred Stock represents nonvoting ownership shares of the corporation. Because the stock is nonvoting, stockholders cannot elect members to the board of directors. However, preferred stockholders receive more profit of a company’s dividends than common stockholders.

7. Stock Certificate

8. D) Non-profit Organizations
Some business organizations operate on a “not-for-profit” basis. A Nonprofit Organization works to promote the collective goals of its members rather than seek a profit for its owners.
Many non-profits rely on volunteers who do not get paid for much of their work. In this way, nonprofits can perform useful charity-like services with minimal expenses.
A variety of nonprofit organizations provides a wide range of goods and services to communities across America and sometimes even the world.
Non-Profits are similar to profit-seeking businesses but do not issue stock, nor do they pay dividends to members, and the do not pay income taxes.
If Non-Profit activities produce profits in excess of their expenses, then they use these profits to further fund their work.

9. E) Co-op’s
A common type of nonprofit organization is the Cooperative, or Co-op. A Co-op is a voluntary association formed to carry on some kind of economic activity that will benefit its members.
As Figure 1 shows, cooperatives have a variety of goals. Cooperatives fall into three major categories: Consumer, Service, and Producer.
The Consumer Cooperative is a voluntary association that buys bulk amounts of goods such as food or clothing on behalf of its members.
Furthermore, members of this Co-op usually help keep the cost of the operation down by volunteering several hours a week or month to the operation.
If successful, the Co-op is able to offer its members products at prices lower than those charged by regular businesses.
A Service Cooperative provides services such as insurance, credit, or child care to its members, rather than goods.
One example of a Service Co-op is a Credit Union, which is a financial organization that accepts deposits from, and makes loans to, employees of a particular company or Govt. agency.
Like consumers, producers can also have Co-Op’s. A Producer Cooperative helps members promote or sell their products. In the U.S., most Cooperatives of this kind are made up of farmers.
The Co-op helps the farmers sell their crops directly to central markets or to companies that use the members’ products in the goods they produce.
Some co-ops, such as the Ocean Spray cranberry co-op, market their products directly to consumers, bypassing the need to use a expensive marketing company.

10. Non-Profit Organization